Liquidity

When placing an order in backtesting, any number of shares or contracts can be specified. In reality, some symbols may be thinly traded and some orders my partially filled or not at all.

In order to make backtesting more realistic, a few tests can be made to ensure that either the symbol is liquid enough, or that the trade has a good chance to be completely filled.

For example a tradig system may be coded to only enter a trade if the desired number of shares for that trade is lower than a certain percentage of the total volume for the bar, or to only enter positions in symbols whose average volume for the previous x bars is higher than a certain number of shares or contracts.

Another strategy is to only trade stocks that have an average price over a certain value, as it is known that many of the so called "penny stocks" have lower liquidity than higher priced symbols.